Unlisted trusts: ASIC compliance worth the cost: industry

Plans by ASIC to implement a tougher disclosure regime for unlisted property trusts starting July 2012 have received support from the Property Funds Association (PFA).

PFA board member Hamish Bowman says the cost of complying with new benchmark requirements will be outweighed by improved investor security and investor sentiment.

“It is a step in the right direction,” he says.

Under the ASIC proposal, unlisted property trusts will be required to comply with six key benchmarks around gearing, related party transaction, valuations and distribution, and they will also be required to advertise that they are complying.

According to Bowman, who is also chief executive of Salvest Capital, the proposed legislation has come at a good time, because funds are starting to trickle back into the unlisted property sector and the new rules will help raise investor confidence.

"Investors were the ones that carried the financial burden, to a large extent, throughout the global financial crisis and that was because there weren't many hurdles," Bowman told InvestorDaily.com.

"Now, it is going to put the onus back on managers to substantiate, to another level, the investment that investors buy into."

However, Dugald Higgins, a senior investment analyst at research group Zenith Investment Partners, told the AFR some funds may push back against the tougher guidelines because they do not wish disclose sensitive financial metrics such as cost of capital.

Furthermore, Higgins, who has analysed 100 of the largest funds, which hold $12.4 billion in assets, warns the proposed compliance regime will not be a “silver bullet” for investors, who will still need to their homework on a fund before investing.

“It is very easy to project false confidence,” he says.

Industry participants have until September 6 to comment on the consultation paper.

ASIC will then draft an updated regulatory guide to be released in December 2011.

July 1, 2012 is proposed as the start date for trusts to begin disclosing against the benchmarks and amended disclosure principles.